Water Marketing Strategies & The Utah Water Banking Act
Utah is facing existential challenges requiring an “all hands-on deck” approach to water. The term “water marketing” encompasses all forms of water exchanges between users. Water leasing is a commonly used form of water marketing and represents a local, voluntary and temporary exchange of water. Water banking is one kind of water marketing tool focused on facilitating water leases between users. The Utah Water Banking Act is a relatively new method of creating water banks in the state of Utah. Water marketing arrangements of all kinds are flexible win-win tools that can generate income for water right owners, bring stability and order to local water systems and increase access to water.
For the last three years, the project team of Clyde Snow & Sessions, WestWater Research, HDR and GovFriend have been working diligently with state agency staff, interested stakeholders and local water users to pilot the Water Banking Act and complete a Statewide Water Marketing Strategy Report. Starting to explore water marketing activities can be overwhelming. Based on stakeholder experiences, the project team has identified five key Marketing Milestones needed to navigate water marketing.
- PEOPLE: To have a successful conversation about water marketing, participants needed to not only identify those who want water and those who have water, but also supporting players like attorneys, regional State Engineers and key decision makers. It was also critical to identify who has the interest, resources and capacity to participate in the discussion and to identify those who can champion the effort to completion.
- MARKETS: Essential to any water marketing activity is understanding whether there is a “there, there” – does a potential water market exist? Does the area have the right match of willing lessees and lessors and basic, but surprisingly overlooked, supply and demand? The project team has distilled a series of key questions for water users to ask to determine if a viable water market exists.
- LOGISTICS: The next critical step in the process is to assess the ability and means of moving water between potential lessors and lessees. This analysis includes assessing the physical means of moving water, the legal constraints of participating water rights and governance issues that might impact the movement of water.
- TRANSACTIONS: A market transaction is the formal recognition of the who, what, where when and how water is going to move between parties so that everyone is satisfied with the exchange. Water marketing transactions can take many different forms such as independent leases, a formal Water Bank, a water auction or other form. Most market transactions will contain several key elements such as the means of pricing, timing and availability of water and governance issues. The project team has prepared a template lease that includes many of these terms that can be adapted for local uses.
- APPROVALS: Even if the parties have agreed on their water market transaction, additional approvals may be needed to realize their goals. The project team has worked with the Utah Board of Water Resources to prepare approved Water Bank Application forms and to create an administrative process to guide the Water Bank approval process. Almost all water leasing transactions in Utah will also require a change application be filed with and approved by the Utah State Engineer. Early and consistent communication with the State Engineer is critical to securing approval of a change application and completing a wet water exchange of water.
The project team is excited about the effort to date and will be presenting its findings in public meetings throughout the spring of 2023, releasing a DRAFT Statewide Water Marketing Strategies Report in summer 2023, and releasing a final report in early fall 2023. Information will be updated as materials become ready for public use, review and comment.
DYNAMIC TOOLS FOR A RESILIENT FUTURE
The concepts and investments made over the last several years have proved to be incredibly prescient for the needs of 2023. The tools and lessons learned will help Utah more quickly meet a variety of statewide water policy goals.
LAYING THE TRACKS
In 2017, as a result of a bill sponsored by Senator Jani Iwamoto SB 214 Public Water Supplier Amendments on instream flows, a diverse stakeholder group began to meet to develop a Utah water banking concept and legislation. The stakeholder group, one of the first of its kind and told by many to be one of the most effective to date, ended up totaling over 70 people and including representatives from agriculture, public water suppliers, conservation groups and other interests. Open to anyone, this inclusive stakeholder group spent thousands of hours discussing marketing concepts, studying existing activities in the various basins in Utah, reviewing water banking programs in other western states and receiving public feedback.
Water Marketing Stakeholder Working Group
Jordan River Commission
Strawberry High Line Canal Co.
Utah Division of Water Resources
Bear Lake Watch
Mabey Wright & James
Strawberry Water Users Association
Utah Division of Water Rights
Bear River Canal Co.
Ogden City Corporation
The Nature Conservancy
Utah Legislative Research & General Counsel
Cache Water District
Utah State House
Central Utah Conservancy District
Parsons Behle & Latimer
U.S. Bureau of Reclamation
Utah State Senate
Clyde Snow & Sessions
Provo River Water Users Association
U.S. Fish and Wildlife Service
Utah State University
Rural Water Technology Alliance
United Diesel Service
Weber Basin Conservancy District
FRIENDS of Great Salt Lake
Salt Lake City Public Utilities
Utah Attorney General
White City Water Improvement District
Snow Christensen & Martineau Law
Utah Department of Agriculture & Food
Smith Hartvigsen, PLLC
Utah Department of Natural Resources
Snyderville Basin Water Reclamation District
Utah Division of Water Quality
To support these efforts, in 2019, with Representative Stewart Barlow as the House/Floor sponsor, Senator Jani Iwamoto sponsored SJR 1 endorsing the continued study of water banking, authorizing a one-time $400,000 appropriation, and promoting the effort to secure an additional $400,000 in funding from the Bureau of Reclamation WaterSMART Water Marketing Grant program. The money funded a project team to oversee a three-year project to pilot the Water Banking Act and develop a statewide water marketing strategy for Utah.
UTAH WATER BANKING ACT
Based on their findings, in 2019 and 2020 the stakeholder group put pen to paper and drafted the Utah Water Banking Act (“the Act”). The Act represents the “Utah Way” by focusing on bottom-up interest in water marketing and putting Utah water users in the driver’s seat of local water marketing activities. By starting at the local level, water users can design a water lease that suits local interests and conditions. For example, local water users determine the form of lease, lease terms, pricing structure, water rights subject to the lease, etc.
The Act recognizes two forms of leasing arrangements eligible to be approved by the Utah Board of Water Resources and a Utah Water Bank: a Contract Water Bank and a Statutory Water Bank. The Board of Water Resources does make a substantive review of the application but approves all Water Bank Applications that are deemed complete. Once approved, there are annual reporting requirements to the Board of Water Resources.
- Contract Water Bank: Utah Code 73-31-301 et seq.
Water leasing contracts are voluntary arrangements that outline the terms and conditions for the use of water between a discrete set of parties. Many water users in Utah already use contracts as a means to lease water. Depending on location and conditions, contracts are likely to be the primary means for organizing future water market transactions in Utah. Water leasing contracts that meet the criteria of the Act are eligible to apply to be a Contract Water Bank.
The Contract Water Bank Application asks water users to submit general information about the contract and a copy of the contract (see also 5 Step Water Bank Application Process). To prevent private speculation of water, the applicant for a Contract Water Bank must be a non-federal public entity: other parties to the contract do not need to be public entities.
- Statutory Water Bank: Utah Code 73-31-201 et seq.
A Statutory Water Bank is a legal entity organized for the purpose of administering and facilitating water leasing between multiple parties in a defined area. Statutory water banks are modeled after private irrigation companies and run on private governance documents such as articles, bylaws, or other organizational documents. A Statutory Water Bank application (under development) requires the applicant to demonstrate their organization documents address a number issues needed for prudent management and leasing of water. The applicant for a Statutory Water Bank must be the owner of a perfected water right. Participation in an approved Statutory Water Bank, either by depositing water rights into or leasing water out of, must be open to all interested water users.
Once approved, participants in a Utah Water Bank are extended certain benefits and protections. In particular, water rights deposited into a water bank are exempt from forfeiture, water rights can be leased for environmental purposes and water banks are subject to a streamlined change application proceeding that provides participants greater flexibility.
In 2020, with near unanimous support, the Utah Legislature passed the Utah Water Banking Act (SB 26) – now Utah Code 73-31. The passage of the Water Banking Act was a bipartisan effort spearheaded by Senator Jani Iwamoto and former Representative Tim Hawkes. The effort precipitated and exemplified the need for Utah Legislators to work across the aisle to find creative water solutions.
Statewide Water Marketing Strategies
In addition to developing the Utah Water Banking Act, the stakeholder group understood that water banks are just one kind of marketing tool. To ensure Utah water users had the best information, the stakeholder group recommended that while piloting the Water Banking Act, the project team explore and analyze alternative water marketing tools. Accordingly, using the $800,000 of funding between 2020 and 2023 the project team is tasked with:
- piloting the concepts of the Water Banking Act in three pilot areas – Cache Valley, the Price Area, and Snyderville Basin
- establishing administrative processes and forms to facilitate approvals of Utah Water Banks before the Utah Board of Water Resources water banking
- create useful templates and tools for water users to explore water marketing more broadly
- produce a Statewide Water Marketing Strategies Report
The Statewide Water Marketing Strategies Report will be the culmination of many years of work and act as a tool for Utah water users to move forward with a number of Statewide water priorities.
Overview & Pilot Summaries
The Statewide Water Marketing Strategies grant application identified three pilot projects areas to explore implementing the Utah Water Banking Act and water marketing alternatives. Lessons learned in these pilot areas are to be reflected in the overall Statewide Water Marketing Strategies Report. The three pilot projects were identified early in the process based on local stakeholder interest.
Two-Party Late Season Lease Pool Contract
Snyderville / East Canyon Creek:
Background. The Cache Water District identified water marketing strategies as a potential tool to address local issues such as inadequate late-season irrigation water, growth within ditch systems, and scattered water owners. The district was interested in coordinating meetings to explore water banking and water marketing alternatives.
Background. Two environmental NGOs have been actively developing water leasing projects in the Price River Basin to benefit instream flows. The NGOs had previously partnered with the Carbon Canal Co. and its shareholders on several projects. They wanted to test the water banking structure as a new means of securing instream flows.
Discussions resulted in the first ever approved Contract Water Bank in the state of Utah.
Background. Various stakeholders, including environmental NGOs, a municipal sewer district, and local municipalities wanted to use water banking to improve instream flows in East Canyon Creek during critical low flows in late summer.
- Shop for Best Fit: Consider multiple water marketing methods when addressing a local water need; identify which methods best address the needs of the local participants.
- Be Clear on Purpose: Defining the needs of water users should come first. Local conditions will dictate the form of and participation in water banks.
- Someone Needs to Lead: Having an engaged and local champion is invaluable in setting up water markets.
- People Want to Know: Outreach and education are critical and might require significant resources. Stakeholder engagement should be early and often.
- Welcome Support: Resources from state agencies are available and grant funding may be available to support setting up a water bank.
- Is it Worth the Effort? The effectiveness and return on investment of a Utah Water Bank should be monitored and compared to other transaction mechanisms.
- Pick the Easy Route: Establishing a lease program or local market is significantly streamlined if the source water rights have flexibility in use and formal change applications do not have to be filed with state agencies.
- Large Group Consensus is Challenging: The success and speed of negotiations can be improved by empowering a limited number of representatives to negotiate on behalf of contracting parties.
- Don’t Study it to Death: Technical studies are important to understand water bank operations and useful when seeking regulatory approval. However “analysis-paralysis” should be avoided.
- Have Fun: Water is complicated and can be contentions. Try to foster an environment of creativity and community in your discussions. Approach the task as a group effort looking to address common challenges.
Resources & Application
More information to come.
Why water banking?
Utah has limited water to meet growing demand. Water users constantly face many challenging and changing conditions. To navigate uncertainty, water users need tools that bring flexibility and stability to their operations.
To address these challenges, activities to buy and sell or lease water are increasing across the West. With high demand for water, local communities are concerned about maintaining control over the terms and conditions of these activities.
The Water Banking Act is a stakeholder effort to facilitate the development of water market activity that is locally controlled, temporary in nature and always voluntary. The act addresses several barriers impeding more flexible water use and extends benefits requested by the water user community. The act will be used by, and be for the benefit of, local water users.
The act resulted from a three-year effort and reflects collaboration and feedback from multiple water interests. It is exploratory and water users will have an initial 10 year window to test the act before it sunsets in 2030. At that time, the act can be extended, modified or allowed to lapse.
The water banking project team, discussed below, is here to assist local water users explore the act and implement a water bank where desired. The project team is solely interested in learning about how the act functions in practice and whether it can be of use to local water users. All efforts are intended to be responsive to local interest and requests.
What is the Water Banking Act?
The Water Banking Act (Utah Code 73-31) promotes temporary, voluntary and locally directed leasing arrangements for the use of water rights. Leasing arrangements retain local ownership of water rights, create income and provide expanded water access.
The act provides water users ultimate flexibility to design a leasing arrangement that meets local conditions. Local water users can determine the size and scale of a bank’s service area, which water rights participate, lease prices, lease terms, conditions for leasing, distribution of proceeds, etc..
What are the benefits of water banking?
- Streamlined administrative process: Once water rights are approved to be deposited in a water bank, no additional Change Applications or state approvals are needed to move water to a new use within the approved service area. This is intended to facilitate quicker and cheaper movement of water on a temporary basis.
- Forfeiture: Water rights approved to be deposited in a water bank are exempt from beneficial use requirements and protected from forfeiture.
- Environmental/Instream-Flows: Banked water can be leased for any purpose authorized by the act, including instream flows.
- Condemnation Protections: Banked water is shielded from any condemnation procedures while in the bank and for a period of time afterwards.
Isn't water banking already being done in Utah?
Yes, though not termed “water banking.” There are already a few informal efforts around Utah that are similar to water banking. The legislation would not affect those efforts. It would, however, create a 10-year pilot program that would establish a statutory framework. The framework would give water right holders the option of creating and operating their own water banks. The banks would be subject to public notice and comment, oversight from the Board of Water Resources and coordination with the State Engineer.
How would a water right holder be protected from abandonment and forfeiture when putting water into a bank?
Water right holders would retain ownership of their water rights. The rights would revert to their prior “heretofore” use when withdrawn from the bank without the need for a change application. Water rights deposited within a bank would also not be subject to abandonment and forfeiture for the period of time the State Engineer authorizes them to be used within a bank.
How would the banks be locally driven?
The decision to create, or participate in, a water bank would be entirely voluntary and would be made at the local level. The banks would be locally managed. Only a record holder of a perfected water right may request approval for a statutory water bank and designate the service area of a water bank. No banks would be managed at the state level.
What types of banks could be formed?
- Many water users already have leases arranged by contract.
- A contract water bank would apply in those cases or where a review of local conditions shows the desired water market activity is best managed through a contract.
- A contract water bank seeks approval to utilize a specific water transfer contract consistent with the terms of a water bank and with the flexibility provided by the act.
- A contract water bank application asks water users to submit general information about the contract and a copy of the contract.
- The applicant for a contract water bank must be a non-federal public entity to prevent private water speculation: other parties to the contract do not need to be public entities.
- A statutory bank is a legal entity organized for the purpose of administering leasing activity between parties in a defined area.
- Statutory water banks are modeled after private irrigation companies and run on private governance documents such as articles, bylaws, and policy documents.
- A statutory water bank seeks approval to develop new and unspecified water lease agreements under a locally managed water bank.
- A statutory water bank application requires that the applicant demonstrate they have addressed a number issues needed for prudent management and leasing of water.
- The applicant of a statutory bank must be the owner of a perfected water right and participation is open to all interested water users.
Would the change application process change?
No. Water right holders seeking to move a water right into a bank would go through the same change application process that applies to all water rights. This means the State Engineer would review all applications that seek to place a water right into a bank to ensure that they do not impair other rights. It also means that the existing limitations on out-of-basin transfers would apply.
After the State Engineer approves a right for use within a bank, the right could be used for a specified period of time within the bank’s service area for other uses without the need for another change application. This, of course, would be subject to any limitations imposed by the State Engineer.
How will we know if water banking is working?
As a pilot program, every bank would submit an annual report to the Board of Water Resources. At the end of the pilot program, the board would report on the effectiveness of the water banking program to the Legislature. The Legislature would then determine whether to continue the program, modify it, or allow it to terminate.
Because this program is intended to be a pilot program, the draft legislation is intended to keep it as simple as possible to limit the potential for unintended consequences and to make it easier to study the effectiveness of the program.
What do I need to pursue water banking in my area?
Water Bank Application:
Interested water users can apply to the Utah Board of Water Resources to have qualifying leasing arrangements be approved as a “Water Bank.” The approval process includes a public hearing and applications are approved when deemed complete and in conformance with the act. Contact Emily at @firstname.lastname@example.org
If you have questions, or are interested in more information regarding water marketing and the Water Banking Act, please send an email to email@example.com.